FDIC sues big banks for fraud

Mar. 15, 2014

Written by

Marcy Gordon

Associated Press

WASHINGTON — The Federal Deposit Insurance Corp. has sued 16 big banks that set a key global interest rate, accusing them of fraud and conspiring to keep the rate low to enrich themselves.

The banks, which include Bank of America, Citigroup and JPMorgan Chase in the U.S., are among the world’s largest.

The FDIC says it is seeking to recover losses suffered from the rate manipulation by 10 U.S. banks that failed during the financial crisis and were taken over by the agency. The civil lawsuit was filed Friday in federal court in Manhattan.

The banks rigged the London interbank offered rate, or LIBOR, from August 2007 to at least mid-2011, the FDIC alleged. The LIBOR affects trillions of dollars in contracts around the world, including mortgages, bonds and consumer loans. A British banking trade group sets the LIBOR every morning after the 16 international banks submit estimates of what it costs them to borrow. The FDIC also sued that trade group, the British Bankers’ Association.

By submitting false estimates of their borrowing costs used to calculate LIBOR, the 16 banks “fraudulently and collusively suppressed (the LIBOR rate), and they did so to their advantage,” the FDIC said in the suit.

Four of the banks — Britain’s Barclays and Royal Bank of Scotland; Switzerland’s biggest bank, UBS; and Rabobank of the Netherlands — have previously paid a total of about $3.6 billion to settle U.S. and European regulators’ charges of rigging the LIBOR.